Vietnam automobile market and support problem

Continuing the downward trend of 2023 (up to 25%), in the first 4 months of 2024, the number of cars consumed on the market is still falling to a worrying level, high inventory, causing difficulties for automobile manufacturing and trading enterprises. The question is how the Vietnamese automobile industry will develop and how competitive the products will be in the context of the import tax reduction roadmap implemented when Vietnam implements its commitments in the Free Trade Agreement between Vietnam and the European Union (EVFTA).

Difficult consumption, high inventory

After reaching the milestone of over 500,000 vehicles in 2022, in 2023, the Vietnamese auto market declined sharply. In 2023, counting the results from members of the Vietnam Automobile Manufacturers Association (VAMA) alone, car sales reached 301,989 vehicles, dropping 25% compared to the previous year (reaching 404,635 vehicles, up 32% growth). Adding sales from TC Motor with 67,450 vehicles, in 2023, Vietnam's automobile market consumption was estimated to reach about 370,000 vehicles.

Entering 2024, the auto market is still facing difficulties with a worrying decline, despite businesses' discount and promotional programs to stimulate market demand.

Sales reports from VAMA and Thanh Cong Group (TC Group) showed that in January 2024, most businesses witnessed sales decrease from 45% to 76%. Counting VAMA members alone, the total vehicle sales of VAMA member units only reached 19,243 vehicles, reducing 50% compared to the previous month. In particular, the number of domestically assembled cars sold was only 9,783 cars, a decrease of 59%, while imported CBU cars dropped by 36%, (reaching 9,460 cars).

In the following months, car consumption on the market will still be in a downward trend. In the first 4 months of 2024, VAMA members consumed 82,515 vehicles, declining 11% compared to 2023. In particular, passenger cars decreased by 14%; commercial vehicles reduced by 3% and specialized vehicles decreased by 28%.

According to the sales report of TC Group, the enterprise with the leading car sales volume in the market, Hyundai car sales in April 2024 reached 4,276 cars, dropping 4,542 cars compared to the previous month and reducing 4,592 cars compared to the same period last year. Cumulatively in the first 4 months of 2024, Hyundai car sales reached 14,420 vehicles, a sharp decrease compared to 19,328 vehicles in the first 4 months of 2023.

It is estimated that the current car inventory is about over 70,000 vehicles of all types, mainly cars manufactured in 2023.

According to the Ministry of Industry and Trade, the production and business situation of automobile enterprises is still facing difficulties because the market has not yet fully recovered from the pandemic and the current economic recession, which resulted in a serious impact on manufacturing enterprises, automobile assembly and the entire economy. In particular, rising inflationary pressures, exchange rates, and interest rates... affect consumer psychology, leading to a tendency to tighten spending on high-value items.

A hitch for the market

Recently, automobile manufacturing and assembling enterprises have offered many incentives and support programs to encourage consumers to buy cars. But if relying only on individual resources and stimulus solutions, it would not be enough to create the momentum to help the auto market grow again in a sustainable way.

In fact, to encourage the development of the automobile industry as well as effectively implement commitments in Free Trade Agreements (FTAs) of which Vietnam is a member, the Government has issued many preferential tariff policies for the automobile industry and automobile supporting industries including preferential import tax policies; special consumption tax incentive policy (SCT); registration fees and other preferential policies.

Only regarding fuel consumption, from 2022 until now, the Government has reduced the fuel consumption rate by 50% for domestically produced and assembled cars three times (stipulated in Decree No. 70/2020/ND-CP that was taken effectively from June 28, 2020 to December 31, 2020; Decree No. 103/2021/ND-CP took effect from December 1, 2021 to May 31, 2022); Decree No. 41/2023/ND-CP took effect from July 1, 2023 to December 31, 2023).

The 50% reduction in registration fees for domestically produced and assembled cars has contributed to financial support for people and businesses by directly reducing costs when registering car ownership, thereby stimulating demand, motivating people and businesses to purchase domestically produced and assembled cars to serve for the demand of consumption and business production. Thereby, supporting manufacturers and distributors to sell car inventory.

At the same time, domestic automobile manufacturers promote the manufacturing and assembly of new vehicles to bring to the market, and improve the competitiveness of domestically produced and assembled automobiles to meet domestic market demand, aiming to export to the ASEAN region.

Hard problem

It can be seen that every time the market faces difficulties, thanks to the support of preferential policies (such as reducing registration fees), car consumption improves. This solution always seems to be "looked forward" by businesses.

However, according to experts, this is only an "emergency" medicine at particularly difficult times, so it is necessary to consider other long-term solutions so that the automobile industry can quickly have a strong, healthy "body".

According to the Ministry of Industry and Trade, thanks to policies from the Government and efforts from businesses, recently, the automobile industry has achieved certain results. However, the overall picture shows that there are still many set goals that have not been achieved and many limitations that need to be overcome. For example, the localization rate of cars with less than 9 seats has only reached an average of 12-20% (far below the 2020 target of 30-40%); the export rate has only reached 1,000 vehicles (the target for 2020 is 5,000 vehicles).

Implementing preferential support solutions from tax and fee policies also requires considering many factors. For example, the application of 50% exemption and reduction of registration fee, according to the Ministry of Finance, will impact the reduction of state budget revenue.

From December 2021 to the end of May 2022, the Government has reduced the registration fee for domestically produced and assembled cars by 50%. This support helps "stimulate" the consumption market to increase, (the number of domestically produced and assembled cars registered in December 2021 was 103,722 vehicles, an increase of 2.67 times compared to November 2021; the number of domestically produced and assembled cars registered in the first 5 months of 2022 was 294,455 vehicles, an increase of 1.2 to 2 times compared to the same months in 2021), but also has an impact on reducing state revenue collection on registration fee equivalent to VND8,727 billion.

Besides that, there are opinions that this policy may not fully comply with the provisions of the National Treatment principle within the framework of the World Trade Organization (WTO) and FTAs. Vietnam is currently a member of the WTO and has signed many bilateral and multilateral FTAs, in which it has committed to implementing the principle of National Treatment in trade and investment. Accordingly, currently, tax, fee and charge policies in legal documents are applied uniformly between domestically produced goods and imported goods.

More importantly, to date, Vietnam has signed 17 FTAs and will reduce tariffs (including import taxes on cars) following the committed roadmap. Accordingly, the import tax on cars from countries that have signed FTAs with Vietnam will be strongly reduced and aimed at 0% (the import tax on cars from ASEAN countries is already 0%, for the EU market when entering 2024, the highest tariff rate for importing passenger cars under 9 seats from these countries is only 42.5%).

To compete with imported CBU products (which are subject to import tariffs by 0%), domestic manufacturing and assembly cars needed to be "healthy" in a sustainable and certain way instead of just waiting on temporary relief and "emergency" solutions.

Source: Customs News